House sale may be only way out of squeeze

Sunday

Jan 6, 2013 at 12:01 AM

DEAR BRUCE: I am single and 61. My hours at work got cut, and now I'm finding that the monthly mortgage payment is choking me. My payment is $1,275 a month, and once I pay it, I have nothing left for much of anything else.

BRUCE WILLIAMS

DEAR BRUCE: I am single and 61. My hours at work got cut, and now I'm finding that the monthly mortgage payment is choking me. My payment is $1,275 a month, and once I pay it, I have nothing left for much of anything else.

I have an IRA worth $50,000 and a life insurance policy with a cash value of $20,000. I'm going to need to use this money to help defray the monthly costs; I'm just not sure which one to dig into first.

Sandy, via email

DEAR SANDY: With house payments of $15,300 a year, neither of your investments is going to last long. Between the IRA and the insurance, you have $70,000 in savings. If you were to use your savings alone to pay your mortgage, this would last you only a little over four years.

Unless you can supplement your income with a part-time job, it seems to me that you cannot afford your house. You could sell the house, bank the proceeds and rent a place to live. You would have far fewer financial responsibilities by not owning a house because there would be no repairs, insurance, property taxes, etc.

I hate to be the bearer of bad news, and I know it's tough to give up a home for reasons like this. But unless you can supplement your monthly income, I don't see any other choice. I wish you well.

DEAR BRUCE: Recently my wife and I answered a mailer to meet for "lunch" with a financial planner. We thought, "Hey, what the heck, nothing better to do."

This guy advised us to take out a reverse mortgage on our house, which is paid for. He then said we should use those funds to buy a life insurance policy on my wife for $275,000, which would then go to our son as the beneficiary when she passes away. The rest of the money (our house is worth approximately $500,000) could then be invested.

I'm not sure why we should really do this, as our income is fine and we live comfortably. What do you think?

Reader, via email

DEAR READER: Why in the world would you pay the rather high interest rate and fees that come with a reverse mortgage to produce a life insurance policy? From what you've told me, the only guy who benefits is the insurance salesman who is posing as a financial planner — and selling a rather substantial life insurance policy.

Forget the reverse mortgage and continue doing what you've been doing. It seems to be working for you, so don't change it.

DEAR BRUCE: I know you have received many letters from parents about lending their children money and never getting paid back. I have the perfect solution.

I have been keeping a running total of what has gone out and not been repaid. In my will, I state that whatever is still owed is deducted from my children's inheritance. Everyone in the end gets that same amount of money, no exceptions. None gets more than another. My kids know this, so they can either have it now or get it later.

Reader, via email

DEAR READER: First of all, I have said many times in my column that I don't believe each child should be treated equally. If one has a greater need than the other, or if one is far more successful than the others, there's no need to share and share alike.

When lending money to your offspring, you must start with the notion that you will not be repaid. Money should be considered a gift, at least in your mind. If you cannot afford to lose it, then you shouldn't lend it.

DEAR BRUCE: My 45-year-old son keeps getting phone calls about a debt. He has no idea what it is for, and he has asked repeatedly for proof. As of yet, the callers have not come forth with any documentation for this $1,000 debt, which they claim goes back four years.

I would think there is a statute of limitations on a bill that no one has tried to collect in that time. What can my son do to get them to quit calling?

Reader, via email

DEAR READER: You should understand that the callers likely represent a company that has bought the obligation for a few pennies on the dollar. The company will do whatever it can to collect and make a profit on that transaction.

The first thing to do is to find out what the statutory limitations are, if any, in the state where your son lives. Under no circumstances should he agree to pay anything until all claims are reasonably substantiated IN WRITING.

DEAR BRUCE: I finally relented and decided it was time to get my will drawn up. My property is all in my daughter's name. My question is, since it's in her name, will it have to go through probate when the time comes?

Reader, via email

DEAR READER: Congratulations on having your will done with an attorney. So many people want to get it over with quickly and do it online.

If the property is all in your daughter's name as you described, there is no reason the will would be filed for probate. It would be filed but not probated, since there are no assets remaining in your name. In the event that you've overlooked assets, the will is there to cover that eventuality. You've done well!

DEAR BRUCE: Several years ago, I was billed for an item that I did not order or receive. It was an error by the company; the item was charged by another family member. The company corrected its error and acknowledged that there was no debt after a lot of aggravation and phone calls.

Now, three years later, I have received a letter from a collection agency demanding payment. I have tried to contact the company and the bank it is using for its credit card, and they won't respond to any of my calls or emails. In the meantime, the collection agency is hounding me. I have tried everything I can think of and don't know what else to do.

S.R., via email

DEAR S.R.: This is a case where telephones and emails are largely a waste of time.

I would write one — and only one — letter in which you briefly describe the circumstances and state that you have no intention of meeting this alleged obligation. Send the letter to the collection agency by certified mail, return receipt requested. This will give you absolute proof that your letter was delivered. Have no further contact with the agency until it gives you definitive written information about its alleged claim.

By and large, I think the agency will look at the letter, and that will be the end of that. Obviously, you are going to keep indefinitely the receipt and any information you have in your files about the alleged obligation.

DEAR BRUCE: When my parents died, some coins were passed on to me. I've just held on to them, not really having any interest in them.

I saw in the paper that an antique show is coming to one of the local hotels in a few months; the dealers are looking for antique furniture, accessories, gems and coins. I am thinking about taking in my coins to see what they are worth and maybe even selling them. They look to be in good condition, so I'm hoping they are worth something.

Do you think this is a good place to get an idea of their value? I don't know if I should hold on to them or sell them.

S.T. in New Mexico

DEAR S.T.: One thing you should know about coins is that they are rated — and their value is determined — by their condition. Unfortunately, your idea of "good condition" may not be the same as a dealer's. In fact, what looks like good condition to you is likely a low grade.

You can get an idea of your coins' value, if any, before going to the antique show by visiting any bookstore that has a variety of coin books and magazines. Of course, there's always the Internet.

These coins are nice things to hang on to, but as an investment, I wouldn't get my hopes up too much.

DEAR BRUCE: I have heard you talk about umbrella policies and would like to get one. I'm not sure if it's a problem or not, but I have my car insurance with one company and my homeowners insurance with another. Should they both be with the same company to have an umbrella policy?

Reader, via email

DEAR READER: As you know, I am very much in favor of an umbrella policy, which in general raises your liability insurance from the paltry amount most people carry on their cars and homes to a respectable several million dollars. That may sound like a lot of money, but it's not difficult to incur that kind of damage in today's world.

Although it is not necessary to have your auto and homeowners policies with the same company, it does make the umbrella underwriting and claims procedures much easier. Unless there is a significant reason why you have your auto and homeowners policies with different companies, I would choose one company and have it write all three policies.

Send questions to bruce@brucewilliams.com or to Smart Money, P.O. Box 7150, Hudson, FL 34674. Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.